A Strategic Analysis of the BRICS Nations

Tue, 2013-01-22 14:48

If you have been following my columns, you have most likely observed my writings indicating that the great commodity super cycle, which has lasted a decade, was caused in part by the engines of growth in the BRICS nations. The emerging BRICS nations include Brazil, Russia, India, China and South Africa. Of course in recent years, global analysis has included the KIMT nations of South Korea, Indonesia, Mexico and Turkey also in this emerging category. Combined, these economies are the size of the U.S. economy, and they have represented half of the world’s GDP growth since the year 2000.

Let’s conduct our own strategic analysis of the BRICS nations as engines of growth sustaining the commodity super cycle here in U.S. agriculture. First, the BRICS nations represent approximately 40% of the world population. China acts as the fulcrum of the BRICS, and its economy showed a slight slowdown in mid-2012, but with GDP growth increasing from 7.4% to 7.9% from the third to fourth quarter of 2012, its future economic growth is looking brighter. Recent changes in leadership and financial stimulus packages have resulted in the Chinese economy rebounding and expanding. One telltale sign has been the Purchasing Manager Index (PMI) above 50, indicating an expansionary phase in this economy. The health of China’s economy is critical to U.S. agriculture and commodities because China is the second largest economy in the world, so it can make a difference on a global scale.

An analysis of the other four nations comprising the BRICS nations finds issues including high inflation, lack of foreign investment and social and political unrest. The BRICS nations are moving into a critical stage in working together as economic allies. The BRICS countries have increased trade, investment and political support but are running into bumps in the road. For example, Brazil and Russia are in a dispute over Brazilian agricultural exports. Russia would like to position itself as an agricultural exporter providing competition to all the other BRICS nations. Slower economic growth in developed countries, as well as China and India, has resulted in a re-entrenchment of commodity prices, which has hurt Brazil.

These nations are in an economic slowdown, with India having a high inflation rate – above 7% – and also large deficits. Brazil has had a history of hyperinflation and has high tax rates, poor infrastructure and heavy government intervention in agriculture. Russia depends on Europe’s economy – which is 26% of the world economy – for export of oil and gas, and with much of the European Union in recession, slower growth in Russia can be expected. South Africa, the largest economy on the African continent, is in the midst of labor and political issues that hinder economic growth there.

The bottom line is the next decade for the emerging BRICS nations may not be one of accelerated growth. Our agricultural and rural areas must closely observe the political, labor, trade and social issues. If these countries have difficulties and their economic growth actually slows, it could impact U.S. agricultural and rural areas. Keep an eye on these emerging economies, as they are the engines that drive North American agriculture forward.

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.